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2022 (7) TMI 692 - AT - Income TaxAllowance of Public issue expenses u/s 37(1) or allowing 1/5th of the same under section 35D - HELD THAT:- While considering the contingency like where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with the issue of shares to increase the capital has to be treated as revenue expenditure, the Hon’ble Apex Court held that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in profit making, the expenses incurred in that connection still remain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. The observations of the Hon’ble Apex Court in the case of Brooke Bond India Limited (1997 (2) TMI 11 - SUPREME COURT] are applicable to the facts of the case on hand on all fours. Irrespective of the fact of assessee increasing the capital base, whether it is for working capital or for creating the capital asset, the expenditure incurred in that connection still retains the character of capital expenditure to reach section 37(1) of the Act has no application and is governed only by 35D of the Act. We have no hesitation to hold that the CIT(A) committed error in allowing the entire expenditure as revenue expenditure under section 37(1) of the Act, and the Assessing Officer was right in accepting the contention of the assessee before him that the 1/5th of the public issue expenses are allowable as deduction under section 35D of the Act. We, accordingly, set aside the orders of the Ld. CIT(A) on the aspect of applicability of section 37(1) of the Act to the public issue expenses, and restore the order of the learned Assessing Officer allowing such expenses in accordance with section 35D - Appeal of revenue allowed.
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